Britain's top share index ended flat on Tuesday, with the market stagnating as expectations for economic stimulus measures were countered by concerns over global growth, which was reinforced by gloomy forecasts from Japan. The government in Tokyo cut its economic assessment on Tuesday, citing the impact of a slowdown in the United States and China on top of Europe's debt crisis.
----- Drugmakers weak; Glaxo hit by UBS downgrade
Miners were weak, tracking falls in copper prices on uncertainty about the outlook for growth, which could impact demand for commodities. Investors were also reluctant to take on fresh positions as they awaited a meeting of central bankers later this week for clues on possible further stimulus measures to boost growth. US Federal Reserve Chairman Ben Bernanke gives a keynote speech on Friday at the US central bank's annual get-together in Jackson Hole, Wyoming, with investors hoping he will hint at forthcoming monetary policy moves, as he has done in the past.
"I think there's an expectation that they (central banks) are going to deliver, but it's to an extent what they're going to deliver," said Joe Rundle, head of trading at ETX Capital. If the banks are very bullish the FTSE could break through the upper end of the August range at 5,876, setting it up to target 5,900, he said. "The risk is to the downside - if they come out and say nothing, I think we're going to fall back quite heavily (to around) 5,625," Rundle added.
However, not all commentators expect the Fed to undertake another round of quantitative easing (QE) to boost the economy. "I am not expecting further QE ... given I think the US has shown good signs of recovery this month in construction and also in retail. I think the US economy is doing as well as it can and doesn't need further stimulation," said Colin McLean, managing director of Edinburgh-based fund manager, SVM.
The FTSE 100 index fell less than a point or 0.02 percent to 5,775.71, stuck within a tight 30-point trading range from a session low of 5,749 and a high of 5,779. Volume for the UK blue-chip index remained thin at around 65 percent of the 90-day daily average as traders returned to their desks after a long UK bank holiday weekend, with many still dragging out the summer holiday break.
"I think prices have held up pretty well given the markets have had a good run. But I think we'll see a bit of profit-taking before the end of the month," said SVM's McLean. Among the weak miners, Rio Tinto lost 1.7 percent, with traders citing the impact of a cut in estimates and price target by Morgan Stanley for Rio and a number of other miners in a sector review, reflecting lowered commodity price forecasts for iron ore and metallurgical coal.
But take-over target Xstrata bucked the mining sector trend, adding 1.4 percent, with its predator, commodities trader Glencore International ahead 4.7 percent, as investors weighed up the chances of its bid succeeding ahead of key shareholders meetings. Xstrata shareholder Qatar Holdings has been pushing for better terms. The Sunday Times reported that Qatar Holding is poised to raise its stake in Xstrata to 25 percent from the current 12 percent should the miner's planned tie-up with Glencore collapse, giving it a de facto veto over any future merger, citing sources close to the bid.
Drugmakers were also a drag on the FTSE 100 index, with GlaxoSmithKline losing 0.8 percent as UBS downgraded its rating for the stock to "neutral" from "buy" with a reduced target of 1,525 pence, down from 1,625 pence. "Given GSK's valuation, and somewhat reduced earnings visibility for the stock, we see less scope for performance versus peers, and thereby downgrade," UBS said in a note.
Peer AstraZeneca lost 0.5 percent. The drugs group has poached Pascal Soriot from Swiss rival Roche to be its new chief executive, hoping his track record in drug innovation and dealmaking can revive a company battered by clinical trial failures and patent expiries.